Video Transcription

Chris Gray: Moving home could be a very costly exercise, especially if you’re renting and you need to pay a one-month bond. So, what can you do if you’ve got better things to do with your money? Well, joining me on the show this evening is Michael Wood from BondSure. Welcome to the show Michael, thanks for coming on. So, tell us a bit about BondSure and how BondSure works.

Michael Wood: Right, it works, because with my background being insurance I thought it would be good if Australian tenants could have better choices when it comes to how to pay for and protect their rental bonds. So what we did was we came up with a product that allows tenants the option of paying their rental bond by instalments over 6 or 12 months and at the same time helping to protect that bond while it’s sitting there with the government at the rental bond board against accidental damage and increased cost of cleaning.

Now that’s a first for Australia that’s the first time we’ve had a rental bond insurance product. Now what my thinking was, was that if you’ve got a good credit rating you might still go and buy your car with finance, you might still buy a TV or a kitchen item of equipment with finance but why not rental bonds? It’s been a long time where everyone just has to pay up front with no other options, so what we’ve come up with is we think something that allows someone with a good credit rating just the choice of not having to pay it up front, so if we took an example let’s say we’ve got a couple looking for a unit in Parramatta in Sydney so they might say “Well we’ve got a good credit rating, why do we have to pay that $2,000 upfront? Why don’t we spend that on that new lounge suite that we want?” So they might say “Well okay, also remember the time that we rented last time we didn’t get all of our bond back? Yeah, why don’t we take up the BondSure insurance as well?”.

Now all that’s needed is that they go on to the BondSure website , they answer some questions they get pre-approved and then what happens is we pay the bond for them we pay it to the estate agent or pay it direct to the government and then at the end of that process they start paying us. Upfront there’s an initial fee and then they pay monthly or fortnightly, if they choose, through that six or twelve-month period and then at the end of that when there’s a property inspection if there’s no accidental damage or increased cost of cleaning or any other claim by the landlord, then they get the whole bond back. If they’re taken up the insurance and there is some damage, then the insurance steps in and pays above an insurance excess. We’ve been absolutely tickled pink by the response with that obviously is resonating with a lot of renters because we’ve had thousands of applicants per month.

CG: I guess if you’re a young person you’re trying to move out of home we see property prices rising rents are rising as well so if you’ve got a month up front plus you’ve got a month bond.

MW: Yes, that’s right.

CG: Then you’ve got to furnish the property for the first time, it’s a lot of money.

MW: It’s an expensive exercise, I think some people forget that it is and it’s a bit stressful what we’re hoping is that if anything we can take some of that stress out of the process and if we can make renting a little friendlier then that’s good for the property investor as well.

CG: I’m a renter as well, so I’ll look for that. Now what is bond erosion and is it a big thing in Australia?

MW: Yeah it is actually, certainly according to the research we’ve done we looked at some statistics that the rental bond board in New South Wales produced for 2014-15 and they showed that only 47% of renters in New South Wales for that year got back all of their bond.

CG: So that’s what it is the erosion is not getting your bond back?

MW: So that yes that’s right. Now not getting your bond back can be through a number of different factors. It might be that you’ve not paid your rent, it might be that you’ve not paid an electricity bill or water bill or something like that, but also, we see a lot of instances where there is bond erosion through just simple accidents, accidental damage and often at the end of a lease there might be arguments over whether it’s damaged or cleaning. That’s why we cover both, so we don’t end up declining indemnity because someone says oh now it’s cleaning not damaged. So yes, we think that the bond insurance can really help renters out.

CG: Yes, a big market. So, let’s go on to some of the costs of it to say you need a bond insurance say $2,000, roughly what’s that going to cost?

MW: Roughly upfront there’ll be a payment for a $2,000 bond over 12 months there will be an upfront payment or $175 and then roughly $50 a week and that will cover the principal that has to be repaid, the interest and also the insurance premium, if that’s added in there as well.

CG: So it’s almost like a regular loan with a regular insurance payment as well?

MW: Yeah that’s right.

CG: Yeah, okay makes sense. Now I guess because I’m a landlord as well as a tenant, should I be worried if my tenants can’t afford to pay the bond? Does that mean they’re going to be fairly dodgy tenants that can’t afford the rent after 2-3 months?

MW: It’s interesting, that’s a good question because when I first did a bit of market research when I came up with the idea I spoke to some agents and they said “Oh Michael if I kind of…”, exactly as you said, but no when I explained the product particularly the insurance side and also most critically the fact that we do an online vet for credit worthiness and we as well as doing the identity checks, they said “Oh, that’s great”.

Actually I think the two things that they really honed in on after that initial scepticism perhaps they said, “Well actually, the good thing is you’re effectively a second set of eyes for us! Our property managers, they’re so busy, but you’re going in there, you’re checking their credit worthiness as well”. So, a BondSure approved applicant might be just what those landlords want.

CG: So, it could be like the lender’s mortgage insurance effectively, they’ve got a harsh serviceability criteria than quite often the banks.

MW: They do, so it gives the bank some you know extra comfort. You know I think the estate agents will say well that’s great because whilst we do some checks they might check if they’ve got a job we go further we do a full credit check, so I think it is an extra set of eyes I think it’s good for property investors and landlords.

CG: So, in terms of the renters what are the key benefits obviously there’s the cash flow perspective.

MW: Yes, the cash flow that’s a big thing as we said it’s a pretty expensive exercise. I think they also like the fact that they can have the access to this rental insurance product. There’s a certain amount of education we have to do with renters whenever it comes to insurance but we try and do so through our website and the third thing is that it’s quite simple. It’s a fast process, it’s all online and I think that’s great for both the renters and the estate agents because the estate agents don’t have to do anything really so apart from check that the property details are correct the bond goes into their account.

CG: And so, as a property investor should I be ideally wanting one of these, and what are the benefits if someone does come with a bond loan and actually would I even know if it’s paid through you or direct anyway?

MW: No, normally it’s through the estate agent so the agent always says can’t hand over those keys till we have the bond so you go online we then send the money straight through to the estate agent’s trust account that’s the only thing we need from the estate agent is their trust account. In fact, in New South Wales we send it straight through to the government under their new system. In any other states and we do need the trust account details. But I think that is actually is good for the investors because if we can take some of the stress out of renting and then it’s good for the investor you know they want they want people who want to rent their properties so if we can make that a little less stressful and more people hopefully will be renting I think the other thing is that the property investor would like to think the tenant that is going into their property might be BondSure approved because of that extra credit check that we’ve done.

CG: Yeah so interesting, it’s amazing how things change with in real estate and you’ve got to open your eyes to what the true picture is all about.

MW: Yeah well, it’s always evolving.

CG: Yes, now obviously you said you’ve had thousands of people come along already, so are you going to be giving people like mortgage brokers a call saying “Hey we’ll have to be doing some business?” or buyer’s agents or whatever else because you’ve got such a big database of some people.

MW: I think over time we’ll be developing a very big database so yes, we’ve made that connection and it would be nice if we can get the trust of that renter during his rental period every renter I guess is a potential first home buyer, so yeah, we could look at doing that ourselves or perhaps partnering with a credible lender and we can offer that service to our loyal customers.

CG: Right okay and what about the real estate industry because agents don’t have the best reputation for liking change or doing extra work, so how are they taking it?

MW: That’s why we intentionally made it like they have to do as little work as possible and I’ve got enough on their plate so we talk to them and we explain them that this is very much tenant driven the tenant goes online, the tenant does it, all we need from them is to register with us, so if a tenant comes in and says “I’m using so-and-so estate agent, I want to use BondSure to pay my bond” all that’s required is that they give us their trust account detail that’s all that’s required. Then they get the money, hand over the keys.

CG: Right okay, now obviously with the insurance side of this this is one thing they hadn’t thought of before because an average tenant can’t really insure them self against getting the bond back and so is this something that you’ve got to get the rental bond or the BondSure thing to get the insurance or could you take the insurance out as well.

MW: You can take either. If you decide to pay the bond upfront but you still want the insurance as long as it’s before the commencement of the tenancy you can just take the insurance. The only thing we need is obviously at the beginning of that insurance we need to rely on the fact that there’s been an inspection, in due course we’ll probably try to introduce at midterm but it would be still dependent on that estate agent having made an inspection.

CG: Wonderful! Well thanks very much for joining us, it was certainly good to hear about some new products.